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Page 1 of 36 © Corporate Professionals
THE COMPANIES (AMENDMENT) BILL, 2016
-- AN OVERVIEW --
The result of the long consultative process undertaken by the Company Law Committee constituted by the Ministry of Corporate Affairs in an attempt to revamp the Companies Act 2013 is out in form of the Companies (Amendment) Bill 2016 (‘Bill’). The Bill in the wake of facilitating ease of doing business aims to bring some radical changes in the Companies Act 2013. Further the Bill will certainly bring cheer among the corporates as it address some of their major concerns. A summary of the amendments proposed in the Bill is outlined in this document
SUMMARY
Page 2 of 36 © Corporate Professionals
S. No. Section Proposed Amendment
1. Section 2(6)- Definition of
‘associate company’
Change in explanation of the term ‘significant influence’ under the definition of Associate Company
has been proposed. Significant influence is proposed to mean control of atleast 20% of the voting
power or control or participation in business decision under an agreement. Further the term ‘Joint
Venture’ has also been defined.
Currently the Act provides for control of atleast 20% total share capital.
2. Section 2(28)- Definition of ‘cost
accountant’
Change in definition of ‘cost accountant’ is proposed. Cost Accountant" means a cost accountant as
defined in clause (b) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959 and
who holds a valid certificate of practice under sub-section (1) of section 6 of that Act.
3. Section 2(30)- Definition of
‘Debenture’
Under the definition of the terms “Debentures”, it is proposed to exclude instruments referred to in
Chapter III-D of the Reserve Bank of India Act 1934 and such other instrument prescribed by the
Central Government in consultation with RBI.
4. Section 2(41)- Definition of
‘Financial year’
It is proposed that associate company of a foreign company can also for apply to the Tribunal for a
different financial year.
5. Section 2(46)- Definition of
‘Holding Company’
It is proposed that for the purpose of definition of the term ‘Holding Company’, the expression
"company" will include any body corporate.
Page 3 of 36 © Corporate Professionals
S. No. Section Proposed Amendment
6. Section 2(49)- Definition of
‘Interested director’
It is proposed to delete the definition of the term ‘Interested director’.
7. Section 2(51)- Definition of ‘Key
Managerial Personnel’
Under the definition of the term “Key Managerial Personnel”, Officers not more than one level
below the directors who is in whole time employment and designated as KMP by the Board, is
proposed to be included.
8. Section 2(57)- Definition of ‘net
worth’
It is proposed to include the Debit or credit balance of profit and loss account in the calculation of
net worth.
9. Section 2(71)- Definition of
‘public company’
Including the word ‘and’ in the definition for more clarity is proposed.
10. Section 2(76)- Definition of
‘Related Party’
Foreign subsidiaries are proposed to be treated as the related party. Further an investing company
or the venture of a company are also proposed to be considered as related party.
11. Section 2(85)- Definition of
‘small company’
It is proposed to extend the maximum prescribed paid-up share capital amount for the purpose
of determining a company as a small company from five crore to ten crore and prescribed
turnover amount from twenty crore to one hundred crore.
Further turnover should be checked as per profit and loss account for the immediately preceding
financial year.
Page 4 of 36 © Corporate Professionals
S. No. Section Proposed Amendment
12. Section 2(87)- Definition of
‘subsidiary company’
It is proposed that a company will be treated as subsidiary in case the holding company exercises
or controls more than one-half to the total voting power either at its own or together with one
or more of its subsidiary companies. Currently instead of ‘total voting power’, ‘total share
capital’ is used.
Further it is also proposed to omit the provisions related to layers of subsidiaries.
13. Section 2(91)- Definition of
‘Turnover’
It is proposed to completely change the definition of turnover i.e. "turnover" will mean the gross
amount of revenue recognised in the profit and loss account from the sale, supply, or distribution
of goods or on account of services rendered, or both, by a company during a financial year.
14. Section 3A- Members severally
liable certain cases
It is proposed to insert a new section regarding liability of members in case number of members
reduced from statutory limit, i.e. seven in the case of public company or two in case of a private
company.
This section was there in the Companies Act 1956 but was missing from Companies Act 2013
15. Section 4- Memorandum
It is proposed that instead of specific objects in the Memorandum of Association of the
Company, the Memorandum may state that the company may engage in any lawful act or
activity or business, or any act or activity or business to pursue any specific object or objects, as
per the law for the time being in force.
Page 5 of 36 © Corporate Professionals
S. No. Section Proposed Amendment
Further in case a company proposes to pursue any specific object or objects or restrict its objects,
the Memorandum shall state the said object or objects for which the company is incorporated and
any matter considered necessary in furtherance thereof and in such case the company shall not
pursue any act or activity or business, other than specific objects stated in the Memorandum.
It is proposed that name reserved by the RoC shall be valid for 20 days from date of the approval
instead of 60 days from the date of application, as currently provided.
It is proposed to include new sub-section 6A and 6B , where a company may adopt the model
memorandum applicable to such a company.
In case of any company, which is registered after the commencement of the Companies
(Amendment) Act, 2016, if the memorandum of such company does not exclude or modify the
contents in the model memorandum applicable to such company, those contents shall, so far as
applicable, be the contents of the Memorandum of that company in the same manner and to
the extent as if that was contents of the duly registered memorandum of the company
16. Section 7- Incorporation of
company
At the time of incorporation of the company, declaration by each subscriber to be attached instead
of an affidavit, as currently provided.
17. Section 12- Registered office of
company
It is proposed that the company shall within 30 of its incorporation shall have registered office
instead of current requirement of 15 days.
Page 6 of 36 © Corporate Professionals
S. No. Section Proposed Amendment
It is proposed that notice of every change of the situation of the registered office, shall be given
to the Registrar within 30 days instead of 15 days, as currently provided.
18. Section 21- Authentication of
documents, proceedings and
contracts
Apart from KMP and any Officer of the Company, it is proposed that an employee can also be
authorized to authenticate documents on behalf of the Company.
19. Section 26- Matters to be stated
in Prospectus
Instead of detailed disclosure in the Prospectus, it is proposed that information and reports in
financial statement as specified by SEBI in consultation with the Central Government may prescribe,
shall be provided.
Till the time SEBI specifies the information and reports on financial information, the regulations
made by it under the SEBI Act, 1992, in respect of such financial information or reports on financial
information shall apply
20. Section 35- Civil liability for Mis-
statements in prospectus
It is proposed to amend section 35 of the Act to relieve the Director, promoter etc. from any civil
liability if such person(s) has relied on a misleading statement made by an expert and he had
reasonable ground to believe and did up to the time of the issue of the prospectus believe, that
the person making the statement was competent to make it and that the said person had given
the consent required and has not withdrawn it.
Page 7 of 36 © Corporate Professionals
S. No. Section Proposed Amendment
21. Section 42- Private placement Proposed changes related to private placement:-
Return of allotment has to be filed within 15 days instead of 30 days.
Money received under the private placement shall not be utilized unless the return of allotment
is filed with the RoC.
Private Placement offer letter shall not contain any right of renunciation.
22. Section 47- Voting rights Since related parties can vote under resolution passed under section 188 of the Companies Act 2013,
therefore it is proposed that right of every member holding equity shares to vote on all resolutions
placed before the meeting should be subject to sub-section (1) of section 188 of the Act.
23. Section 53- Prohibition on issue
of shares at discount
It is proposed to replace the words “discounted price” with the word “discount” and also to allow
companies to issue shares at discount to its creditors when debt is converted into shares in
pursuance of any statutory resolution plan or debt restructuring scheme in accordance with
guidelines or directions or regulations specified by Reserve Bank of India under the Banking
Regulation Act, 1949, Reserve Bank of India Act 1934.
24. Section 54- Issue of Sweat Equity
Shares
It is proposed to allow issue of Sweat equity shares at any time after registration of the Company.
Currently such shares can be issued only after the expiry of one year from the date of
commencement of business.
Page 8 of 36 © Corporate Professionals
S. No. Section Proposed Amendment
25. Section 62- Further issue of
share capital
It is proposed to bring the requirement of compliance with section 42 in respect of the
preferential offer in the section itself. Currently the applicability of section 42 is provided by the
rules.
It is proposed that Right issue offer letter can be sent through courier also.
26. Section 73- Prohibition on
acceptance of deposits from
public
In case of deposits, it is proposed that an amount not less than 20% of the amount of depositing,
on or before the 30th day of April each year, such sum which shall not be less than twenty per
cent. of the amount of its deposits maturing during the following financial year and kept in a
scheduled bank in a separate bank account to be called deposit repayment reserve account.
Currently atleast 15% of such amount is required to be deposited and that is also of amount of
deposits maturing during a financial year and the financial year next following.
It is also proposed to companies which had defaulted in repayment of deposits, can also accept
deposits after a period of 5 years from the date of making the default good.
27. Section 74- Repayment of
Deposits, etc., accepted before
commencement of this act
Where any amount of such deposit or part thereof or interest thereof remains unpaid on the
commencement of the Companies Act 2013, it is proposed that such amount shall be repaid within
3 years from the date of commencement or before the expiry of the period for which the deposit
was accepted, whichever is earlier. Currently the amount has to be repaid within 1 year or before
the expiry of the period for which the deposit was accepted, whichever is earlier.
Page 9 of 36 © Corporate Professionals
S. No. Section Proposed Amendment
28. Section 76A- Punishment for
Contravention of Section 73 or
Section 76
It is proposed to change the penalty from a fine not less than rupees one crore to rupees one crore
or twice the amount of deposits accepted by the Company, whichever is lower.
29. Section 77- Duty to register
charges, etc.
It is proposed that such section shall not apply to certain charges, as may be prescribed by Central
Government in consultant with the Reserve Bank of India.
30. Section 78- Application for
Registration of charge
It is proposed that the person in whose favour the charge has been created can file the charge on
the expiry of 30 days from creation of charge where a company fails to file so. Currently the charge
holder can register the charge only in case the company fails to do within the period specified under
section 77, which is 300 days.
31. Section 82- Company to report
satisfaction of charge
Timeline for filing of satisfaction of charge is proposed to be increased to 300 days.
32. Section 89- Declaration in
respect of beneficial interest in
any share
For the purpose of declaration of beneficial interest , it is proposed that beneficial interest in a share
includes, directly or indirectly, through any contract, arrangement or otherwise, the right or
entitlement of a person alone or together with any other person to—
(i) exercise or cause to be exercised any or all of the rights attached to such share; or
(ii) receive or participate in any dividend or other distribution in respect of such share.
Page 10 of 36 © Corporate Professionals
S. No. Section Proposed Amendment
33. Section 90- Investigation of
beneficial ownership of shares
in certain cases
The provisions are proposed to be revamped. Key changes proposed are as under:
Every individual, who acting alone or together, or through one or more persons or trust,
including a trust and persons resident outside India and holds beneficial interests, of not less
than twenty-five per cent. or such other percentage as may be prescribed, in shares of a
company or the right to exercise, or the actual exercising of significant influence or control as
defined in clause (27) of section 2, over the company shall make a declaration to the company
Every company shall maintain a register of the interest declared by individuals as aforesaid and
such register shall be open to inspection of members
Every company shall file a return of significant beneficial owners of the company and changes
therein with the Registrar
Obligation is casted on the company shall give notice, in the prescribed manner, to any person
whom the company knows or has reasonable cause to believe to be a significant beneficial
owner of the company who is not registered as a significant beneficial owner with the company
as required under this section.
Page 11 of 36 © Corporate Professionals
S. No. Section Proposed Amendment
In case information asked is not provided , the Company shall apply to the Tribunal for an order
directing that the shares in question be subject to restrictions with regard to transfer of interest,
suspension of all rights attached to the shares
Stringent penalties has been provided for default of this section including liability for fraud u/s
447
34. Section 92- Annual Return It is proposed to omit the requirement of MGT-9.
Abstract form of annual return to be provided for One Person Company (‘OPC’) and Small Co.
The copy of annual return shall be uploaded on the website of the Company, if any, and its link
shall be disclosed in the director’s report
It is also proposed to omit the requirement related to disclosing indebtedness and details with
respect to name , address, country of incorporation etc. of FII in the annual return of the
company.
35. Section 93- Return to be filed
with Registrar in case
Promoters’ stake changes
It is proposed to omit this section.
Page 12 of 36 © Corporate Professionals
S. No. Section Proposed Amendment
36. Section 94- Place of keeping and
inspection of registers, returns,
etc.
It is proposed to omit the requirement of filing of special resolution in advance with the Registrar
of Companies regarding the keeping of the registers and returns at a place other than the
registered office of the company.
Further it is also proposed that certain prescribed particular in return , register or index referred
to in this section shall not be available for inspection or for taking extracts or copies
37. Section 96- Annual General
Meeting
It is proposed that Annual General Meeting (‘AGM’) of unlisted company may be held at anyplace in
India if consent is given is writing or by electronic mode by all the members in advance.
38. Section 100- Calling of
Extraordinary General Meeting
It is proposed that Extraordinary General Meeting (‘EGM’) of wholly owned subsidiary of a company
incorporated outside India can be held outside India.
39. Section 101- Notice of meeting It is proposed that general meeting may be held at a shorter notice if in case of an Annual
General Meeting consent is given by not less than 95%. of the members entitled to vote and in
case of other general meetings consent is given by members holding not less than 95% of paid-
up share capital (in case co. have share capital) or total voting power exercisable at the meeting
(in case co. doesn’t have share capital)
Where any member of a company is entitled to vote only on some resolution or resolutions to
be moved at a meeting and not on the others, than his vote with respect to shorter notice shall
only counted for the purpose of the resolution on which he can vote.
Page 13 of 36 © Corporate Professionals
S. No. Section Proposed Amendment
Currently for calling both AGM and EGM at shorter notice, consent of 95% of members entitled
to vote at the meeting is required.
40. Section 110- Postal Ballot It is proposed that the company may transact an item, which is mandatorily required to be
transacted through postal ballot, at a general meeting also where the facility of electronic voting
under section 108 is provided
41. Section 117- Resolutions and
Agreements to be filed
It is proposed to provide exemption to banking companies from filing resolutions with respect
to grant of loans, giving of guarantee or providing of security in respect of loans in the ordinary
course of its business and it is also proposed to omit clause (e) of sub-section (3) of the section
as the requirement under the clause is already covered in clause (a).
Further the minimum fine for non-filing under this section for company and officer in default is
proposed to be reduced from rupees five lakh to one lakh and rupees one lakh to rupees fifty
thousand.
42. Section 123- Declaration of
dividend
It is proposed that the Board of Directors of a company may declare interim dividend during any
financial year or at any time during the period from closure of financial year till holding of the annual
general meeting out of the surplus in the profit and loss account or out of profits of the financial
year for which such interim dividend is sought to be declared or out of profits generated in the
financial year till the quarter preceding the date of declaration of the interim dividend
Page 14 of 36 © Corporate Professionals
S. No. Section Proposed Amendment
Provided that in case the company has incurred loss during the current financial year up to the end
of the quarter immediately preceding the date of declaration of interim dividend, such interim
dividend shall not be declared at a rate higher than the average dividends declared by the company
during immediately preceding three financial years.
43. Section 129- Financial Statement The requirement of consolidating the accounts of a joint venture is proposed to be omitted.
44. Section 130- Re-opening of
accounts on court’s or tribunal’s
orders
It is proposed that in addition to authorities already specified, any other person concerned shall be
given notice before passing an order for re-opening of accounts. It also proposed that order for
reopening of accounts can be made upto eight financial years preceding the current financial year
unless there is a specific direction under section 128(5) from the Central Government for longer
period.
45. Section 132- Constitution of
National Financial Reporting
Authority
It is proposed to reduce the minimum fine from ten lakh rupees to five lakh rupees.
Page 15 of 36 © Corporate Professionals
S. No. Section Proposed Amendment
46. Section 134- Financial
Statement, Board’s report, etc.
It is proposed that CEO whether appointed as a Director or not, will sign the financial statement.
Currently CEO is required to sign, only if he is also acting as a director.
In case of Board report, it is proposed that disclosures which has been provided in the financial
statement shall not be required to be reproduced in the report again.
It is proposed that instead of exact text of the policies, key feature of policies along with its web
link shall be disclosed in Board report
In respect to performance evaluation, it is proposed to omit the responsibility of the Board for
carrying the performance evaluation of Board, Directors and committee.
47. Section 135- Corporate Social
Responsibility
Eligibility criteria for the purpose of constituting the corporate social responsibility committee
and incurring expenditure towards CSR is proposed to be calculated based on immediately
preceding financial year. Currently this eligibility is decided based on preceding three financial
years.
It also proposed to empower the Central Government to prescribe sums which shall not be
included for calculating 'net profit' of a company under section 135.
Page 16 of 36 © Corporate Professionals
S. No. Section Proposed Amendment
48. Section 136- Right of member to
copies of audited financial
statement
It is proposed that copies of audited financial statements and other documents can be sent at
shorter notice if ninety five percent of members entitled to vote at the meeting agree for the
same and
It is proposed that only listed companies shall publish the accounts of its subsidiary or
subsidiaries. Currently all companies required to comply this.
If the foreign subsidiary is statutorily required to prepare consolidated financial statement under
any law of the country of its incorporation, it is proposed that the requirement of posting
audited accounts of subsidiary shall be met if consolidated financial statement of such foreign
subsidiary is placed on the website of the listed company;
If the foreign subsidiary is not required to get its financial statement audited, it is proposed that
the holding listed company may place such unaudited financial statement on its website and
where such financial statement is in a language other than English, a translated copy of the
financial statement in English shall also be placed on the website
It is proposed that in case any member request for financial statement of a subsidiary , then if
such subsidiary is not required to audited accounts, copy of unaudited financial statement can
also be provided
Page 17 of 36 © Corporate Professionals
S. No. Section Proposed Amendment
49. Section 137- Copy of Financial
Statement to be filed with
Registrar
It is proposed to enable the filing of unaudited financial statements of foreign subsidiary which is
not required to get its accounts audited along with a declaration to that effect.
50. Section 139- Appointment of
Auditors
It is proposed to omit the requirement related to annual ratification of appointment of auditors by
members.
51. Section 140- Removal,
Resignation of Auditor and
giving of special notice
It is proposed to reduce the penalty in case of failure to file resignation by auditor in Form ADT-3.
52. Section 141- Eligibility,
Qualification and
Disqualifications of Auditors
For the purposes of ascertaining the eligibility of a person for appointed as an auditor in a
company, it is proposed to define the term "relative" and which shall mean the spouse of a
person; and includes a parent, sibling or child of such person or of the spouse, financially
dependent on such person, or who consults such person in taking decisions in relation to his
investments
It is proposed that a person who, directly or indirectly, renders any service referred to in section
144 to the company or its holding company or its subsidiary company will not be eligible for
appointment as Auditor. Currently the restriction is only on the person , his subsidiary, associate
company or any other form of entity.
Page 18 of 36 © Corporate Professionals
S. No. Section Proposed Amendment
53. Section 143- Powers and duties
of auditors and auditing
standards
It is proposed to cover associate companies along with subsidiary companies with respect to right
of auditors to have access to accounts and records and proposed to replace cost accountant in
practice with cost accountant.
54. Section 147- Punishment for
contravention
- The maximum fine which can be imposed on an auditor has been revised from rupees five lakh
to rupees five lakh or four times the remuneration of the auditor, whichever is less.
- It is proposed to restrict the liability of auditor who is convicted of any default, to pay the
damages to any person for loss arising out of incorrect or misleading statements made in the
audit report, to only members and creditors of the company. Currently the Auditor are liable to
pay damages to any person concerned.
- It is proposed that criminal liability of an audit firm, in respect of liability other than fine, the
concerned partner or partners, who acted in a fraudulent manner or abetted or, as the case may
be, colluded in any fraud shall only be liable. Currently the criminal liability is of the partner and
the firm, jointly and severally.
55. Section 148- Central
Government to specify audit of
It is proposed to substitute the words 'cost accountant in practice' with the words 'cost accountant'
and also to substitute the words 'Institute of Cost and Works Accountants of India' with the words
'Institute of Cost Accountants of India' for clarity purpose.
Page 19 of 36 © Corporate Professionals
S. No. Section Proposed Amendment
items of Cost in respect of
Certain Companies
56. Section 149- Company to have
Board of Directors
It is proposed that 182 days for determining whether a director is resident in India shall be
computed with reference to the financial year. Currently it is calculated in reference to previous
calendar year.
Further it is proposed that in case of new companies, the requirement of period of 182 days
shall apply proportionately.
In the definition of Independent Director, the words ‘pecuniary interest’ is proposed to be
substituted by "pecuniary relationship, other than remuneration as such director or having
transaction not exceeding ten per cent, of his total income or such amount as may be prescribed.
While determining the eligibility for appointment as Independent director , it is proposed to
extend the restriction related to pecuniary relationships with respect to relative of a director to
include the following
(i) is holding any security of or interest in the company, its holding, subsidiary or associate
company during the two immediately preceding financial years or during the current financial
year. Provided that the relative may hold security or interest in the company of face value not
Page 20 of 36 © Corporate Professionals
S. No. Section Proposed Amendment
exceeding fifty lakh rupees or two per cent. of the paid-up capital of the company, its holding,
subsidiary or associate company or such higher sum as may be prescribed;
(ii) is indebted to the company, its holding, subsidiary or associate company or their promoters,
or directors, in excess of such amount as may be prescribed during the two immediately
preceding financial years or during the current financial year;
(iii) has given a guarantee or provided any security in connection with the indebtedness of any
third person to the company, its holding, subsidiary or associate company or their promoters,
or directors of such holding company, for such amount as may be prescribed during the two
immediately preceding financial years or during the current financial year; or
(iv) has any other pecuniary transaction or relationship with the company, or its subsidiary, or
its holding or associate company amounting to two per cent. or more of its gross turnover or
total income singly or in combination with the transactions referred to in sub-clause (i), (ii) or
(iii) above
It is proposed to allow the appointment of person as an independent director, whose relative is
an employee during the three financial years immediately preceding the financial year , in which
the person is proposed to be appointed as Independent Director
Page 21 of 36 © Corporate Professionals
S. No. Section Proposed Amendment
57. Section 152- Appointment of
directors
It is proposed to make necessary provisions for appointment of any person holding such number as
prescribed under section 153 as a Director
58. Section 153- Application for
allotment of Director
Identification Number
It is proposed to empower the Central Government to recognize any other identification number to
be treated as director identification number.
59. Section 160- Right of persons
other than retiring directors to
stand for directorship
It is proposed that the requirement of deposit of rupees one lakh with respect to nomination of
directors shall not be applicable in case of appointment of independent directors or directors
nominated by nomination and remuneration committee.
60. Section 161- Appointment of
Additional director, Alternate
director and Nominee director
It is proposed to restrict a person from being appointed as an alternate director if he is holding
directorship in the same company.
It is also proposed that a private company may fill up of the causal vacancy by the board and
casual vacancy filled by the Board shall be subsequently approved in the immediate next general
meeting.
61. Section 164- Disqualifications for
appointment of director
It is proposed that the when a director is appointed in company which is in default of filing of
financial statements or annual return or repayment of deposits or pay interest or redemption
of debentures or payment of interest thereon or payment of dividend then such director shall
not incur the disqualification for a period of six months from the date of his appointment.
Page 22 of 36 © Corporate Professionals
S. No. Section Proposed Amendment
It is also proposed to be clarified that disqualification arising due to conviction by court or order
passed by court or tribunal or conviction related to section 188 , shall continue to exist even if
appeal or petition has been filed against the order of conviction or disqualification.
62. Section 165- Number of
Directorship
It is proposed that the directorship in a dormant company shall not be included in the limit of
directorships of 20 companies.
63. Section 167- Vacation of office
of director
It is proposed that in case a director incurs any of disqualifications under section 164 (2) due to
default of filing of financial statements or annual return or repayment of deposits or pay interest
or redemption of debentures or payment of interest thereon or payment of dividend, then he
shall vacate office in companies other than the company which is in default.
It is also proposed that the director will not vacate office in certain cases where an appeal is
preferred.
64. Section 168- Resignation of
director
It is proposed to make filing of Form DIR-11 at the time of resignation, by director optional.
65. Section 173- Meetings of Board It is proposed to allow participation of directors on restricted items at Board meetings through video
conferencing or other audio visual means if there is quorum through physical presence of directors.
Page 23 of 36 © Corporate Professionals
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66. Section 177- Audit Committee It is proposed that instead of listed company, listed public company shall constitute an audit
committee.
It is proposed that related party transactions other than those prescribed under section 188, if
not approved by Audit committee, will require the approval of Board of Directors.
In case any transaction involving any amount not exceeding one crore rupees is entered into by
a director or officer of the company without obtaining the approval of the Audit Committee and
it is not ratified by the Audit Committee within three months from the date of the transaction,
such transaction shall be voidable at the option of the Audit Committee and if the transaction is
with the related party to any director or is authorised by any other director, the director
concerned shall indemnify the company against any loss incurred by it
It is also proposed that approval of audit committee with respect to transactions between a
holding company and its wholly owned subsidiary company will only be required, if the
transactions falls under section 188
67. Section 178- Nomination and
remuneration Committee and
It is proposed that instead of listed company, only listed public company shall constitute a
Nomination and Remuneration Committee (‘NRC’).
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Stakeholders Relationship
Committee
It is proposed that committee will specify methodology for effective evaluation of performance
of Board and committees and individual directors either by the Board, NRC or an independent
external agency and NRC can review the implementation of evaluation system.
68. Section 180- Restrictions on
powers of board
It is proposed to include securities premium along with paid-up share capital and free reserves for
calculation of maximum limits on borrowing powers of the Board.
69. Section 184- Disclosure of
interest by directors
It is proposed to omit the minimum penalty with respect to failure by directors to disclose
interest
It is also proposed to exempt body corporate where any director or two or more of them hold
or holds not more than 2% of the paid-up share capital, from the purview of section 184.
70. Section 185- Loan to directors,
etc.
A completely new section 185 is proposed. Some of the key changes are :
- Complete restriction on providing loan , guarantee or security in connection with loan to
any director, director of the holding company or any partner or relative of any such director
or any firm in which any such director or relative in a partner
- Loan to following parties is allowed subject to special resolution of shareholders and certain
other prescribed conditions
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S. No. Section Proposed Amendment
(i) any private company of which any such director is a director or member;
(ii) any body corporate at a general meeting of which not less than twenty- five per
cent. of the total voting power may be exercised or controlled by any such director,
or by two or more such directors, together; or
(iii) any body corporate, the Board of directors, managing director or manager, whereof
is accustomed to act in accordance with the directions or instructions of the Board,
or of any director or directors, of the lending company
Currently transactions with aforesaid categories is prohibited
- Current exemption provided under section 185(1) continues to remain except that when
company which in the ordinary course of its business provides loans or gives guarantees or
securities for the due repayment of any loan and in respect of such loans an interest is
charged at a rate not less than the rate of prevailing yield of one year, three year, five year
or ten year Government security closest to the tenor of the loan
71. Section 186- Loan and
investment by company
It is proposed to omit the restrictions on layers of investment companies.
It also proposed to exclude employees from the ambit of this section.
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It is proposed that shareholders’ approval will not be required where a loan or guarantee is given
or where a security has been provided by a company to its wholly owned subsidiary company
or a joint venture company, or acquisition is made by a holding company, by way of subscription,
purchase or otherwise of, the securities of its wholly owned subsidiary company.
Investment made by Investment Company will be exempted from section 186.
72. Section 188- Related Party
Transactions
It is proposed that the requirement related to restriction on voting by relatives in the general
meeting shall not apply to a company in which ninety per cent or more members in numbers
are relatives of promoters or related parties.
It is also proposed to provide that non-ratification of transaction shall be voidable at the option
of the Board or shareholders, as the case may be. This amendment aims at bringing clarity since
currently though ratification is allowed both by Board or Shareholders but transaction was only
voidable at the option of the Board.
73. Section 194- Prohibition on
Forward dealings in securities of
company by director or Key
Managerial Personnel
It is proposed to omit this section.
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S. No. Section Proposed Amendment
74. Section 195- Prohibition on
Insider trading of securities
It is proposed to omit this section.
75. Section 196- Appointment of
Managing Director, Whole-time
director or Manager
It is proposed that that in respect of appointment of managing director, whole time director or
manager, approval of Central Government shall only be required in case the appointment is not in
accordance with the matters specified in Part I of Schedule V.
76. Section 197- Overall maximum
managerial remuneration and
managerial remuneration in
case of absence or inadequacy
of profits
- It is proposed the approval of the Central Government shall not be required at the time of the
payment of remuneration exceeding 11% of the net profits of the company.
- It is proposed that company with the approval of shareholders by way of special resolution
can pay the remuneration in excess of individual limits provided for payment of remuneration
to executive or non-executive directors. Further where any term loan of any bank or public
financial institution is subsisting or the company has defaulted in payment of dues to non-
convertible debenture holders or any other secured creditor, the prior approval of the bank
or public financial institution concerned or the non-convertible debenture holders or other
secured creditor, as the case may be, shall be obtained by the company before obtaining the
approval in the general meeting. Currently requirement is of ordinary resolution and no
provision is there for approval of financial institutions etc.
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- It is also proposed that in case of loss or inadequacy of profits , remuneration can only be paid
in accordance with Schedule V. This is very important amendment because currently in case
where remuneration is not paid in accordance with Schedule V, then approval of Central
Government can be obtained but by way of amendment, the provision of approval is proposed
to be omitted.
- It is also proposed to provide relief to director to refund the excess remuneration received by
providing a timeline of two years of or such lesser period as may be allowed by the company.
further until such is refunded, the director shall hold it in trust. Consequently, it is proposed
to delete the provisions related to waiver of excess remuneration paid to directors with the
approval of Central Government
- It is also proposed to provide a provision which empowers the Company to waive the recovery
of excess remuneration paid to directors provided approval of company by special resolution
within two years from the date the sum becomes refundable is obtained. It is also proposed
to provide relief to director to refund the excess remuneration received by providing a
timeline of two years of or such lesser period as may be allowed by the company. Further
where any term loan of any bank or public financial institution is subsisting or the company
has defaulted in payment of dues to non-convertible debenture holders or any other secured
creditor, the prior approval of the bank or public financial institution concerned or the non-
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S. No. Section Proposed Amendment
convertible debenture holders or other secured creditor, as the case may be, shall be obtained
by the company before obtaining the approval in the general meeting. Further until such is
refunded, the director shall hold it in trust. Consequently, it is proposed to delete the
provisions related to waiver of excess remuneration paid to directors with the approval of
Central Government
- It is also proposed that the auditor of the company shall, in his report under section 143, make
a statement as to whether the remuneration paid by the company to its directors is in
accordance with the provisions of this section, whether remuneration paid to any director is
in excess of the limit laid down under this section and give such other details as may be
prescribed.
- It is also proposed to provide relief to Company whose application is pending for approval
before the Central Government under section 197 by providing a provision under which on
and from the commencement of the Companies (Amendment) Act, 2016, any application
made to the Central Government under the provisions of this section as it stood before such
commencement, which is pending with that Government shall abate, and the company shall,
within one year of such commencement, obtain the approval in accordance with the
provisions of this section, as so amended
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77. Section 198- Calculation of
profits
It is proposed that credit for profit arising by way of premium on shares or debentures of the
company which are issued or sold by an investment company provided in explanation to
section 186 shall be allowed as credit to the profit and loss account. Currently such credit is
not allowed.
It is further proposed that sums related to excess of expenditure over income, which had
arisen in computing the net profits in accordance with this section in any year, in so far as such
excess has not been deducted in any subsequent year preceding the year in respect of which
the net profits have to be ascertained, shall be allowed as a deduction.
78. Section 200-Central Government
or company to fix limits with
regard to remuneration
It is proposed to omit the power of the Central Government to fix the remuneration within the limits
specified in the Act, at such amount or percentage of profits as it may deems fits
79. Section 201- Forms of, and
procedure in relation to, certain
applications
It is proposed to bring change as a consequential change in section 196. There seems to be omission
in this section as it doesn’t provides for section 197 , where approval of the Central Government will
be required in case of loss and non-adherence of conditions of Section II of Part II of the Schedule V
80. Section 216- Investigation of
ownership of company
It is proposed to empower Central Government to appoint inspectors for determining true persons
who have or had beneficial interest in shares of a company or who are or have been beneficial
owners or significant beneficial owner of the company.
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81. Section 223- Inspector’s report It is proposed that a copy of inspectors report shall be made available only to members, creditors or
any other person whose interest is likely to be affected, on their request. Currently any person can
request for the copy.
82. Section 236- Purchase of
Minority Shareholding
It is proposed to substitute the words 'transferor company' with the words 'company whose shares
are being transferred' for providing clarity in sub-section (4), (5) and (6).
83. Section 247- Valuation by
Registered Valuers
It is proposed to dilute the restriction on appointment of a registered valuer by providing that that
registered valuer can be appointed for valuation of an asset in which he has a direct or indirect
interest or becomes so interested during a period of three years before appointment as valuer or
three years after valuation of assets.
Currently restriction on appointment of registered valuer for undertaking valuation of any assets in
which he has a direct or indirect interest or becomes so interested is without any limitation on time.
84. Section 366- Companies capable
of being registered
It is proposed to allow conversions into companies from partnership firms, LLP, Society etc. with two
or more members instead of seven or more members.
85. Section 379- Application of act
to foreign companies
It is proposed to bring clarity with respect to applicability of provisions of the Act to foreign
companies by providing that section 380 to 386 and 392 and 393 shall apply to foreign
companies.
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It is also proposed to empower the Central Government to exempt any class of foreign
companies from complying the aforesaid provisions
86. Section 384- Debentures, Annual
Return, Registration of charges,
books of account and their
Inspection
It is proposed to amend the section for providing applicability of section 135 on foreign companies.
87. Section 403- Fee for Filings, etc. It is proposed that only document, fact or information required to be submitted under section
89 (Declaration in respect of beneficial interest in any share), 92 (Annual Return),117
(Resolutions and agreements to be filed), 121 (Report on Annual General Meeting), 137 (Copy
of financial statement to be filed with registrar) or 157 (Company to inform director
identification number to registrar) may be submitted, within a period of 270 days from the
expiry of the period so provided in those sections, on payment of such additional fee as may be
prescribed.
Further it is proposed that in case of documents referred in section 89, 92, 117, 121, 137 or 157
is not submitted, within the period of 270 days from the expiry of the period so provided in
those sections or in any other case within the period prescribed under the relevant section, then
such information, document or fact can be filed on payment of such higher additional fees as
may be prescribed.
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88. Section 406- Power to modify
act in its application to ‘Nidhis’
It is proposed to provide that Nidhi" or "Mutual Benefit Society" means a company which the Central
Government may, by notification in the Official Gazette, declare to be a Nidhi or Mutual Benefit
Society, as the case may be.
Currently mutual benefit society is not covered. Further specific definition of Nidhi company is
provided.
89. Section 409- Qualification of
President and Members of
Tribunal
Following changes are proposed with respect to eligibility for technical members with respect to
the constitution of the National Company Law Tribunal
- Instead of joint secretary, person which has been holding the rank of Secretary or additional
secretary , will be eligible
- A person of proven ability, integrity and standing having special knowledge and professional
experience of not less than fifteen years in industrial finance, industrial management,
industrial reconstruction, investment and accountancy will be eligible. Currently expertise
in other disciplines like law, labour laws, management m conduct of affairs, revival,
rehabilitation and winding-up of companies are also included.
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90. Section 411- Qualifications of
Chairperson and Members of
Appellate Tribunal
Eligibility for appointment as Technical member is proposed to be brought in sync with the
amendment proposed in section 409.
91. Section 446A- Factors for
determining level of punishment
It is proposed to insert a new section providing for factors which the court or special court will
consider while determining level of punishment.
92. Section 446B- Lesser penalties
for One Person Companies or
small companies
It is proposed to provide relief to OPC and Small co., in case of failure to comply with the provisions
of sub-section (5) of section 92 (Annual Return), clause (c) of sub-section (2) of section 117
(Resolutions and agreements to be filed), sub-section (3) of section 137 (Copy of financial statement
to be filed with Registrar). In case of default such company and officer in default of such company
shall be punishable with fine or imprisonment or fine and imprisonment, as the case may be, which
shall not be more than one-half of the fine or imprisonment or fine and imprisonment, as the case
may be, of the minimum or maximum fine or imprisonment or fine and imprisonment, as the case
may be, specified in such sections
93. Section 447- Punishment for
Fraud
It is proposed instead of any fraud, only fraud involving an amount of at least ten lakh rupees or one
percent. of the turnover of the company, whichever is lower shall be punishable with imprisonment
for a term which shall not be less than 6 months but which may extend to ten years and shall also
be liable to a fine which shall not less than the amount involved in the fraud but which may extend
to three times the amount involved in the fraud.
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Further that where the fraud involves an amount less than ten lakh rupees or one per cent. of the
turnover of the company, whichever is lower, and does not involve public interest, any person guilty
of such fraud shall be punishable with imprisonment for a term which may extend to five years or
with fine which may extend to twenty lakh rupees or with both.
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